The Commissioner of Central Excise v. M/s.Computer Graphics Limited

What happened

The assessee converts jumbo rolls of photographic film and also traded in imported ready-to-use unexposed colour film rolls in plastic canisters. A show cause notice of 29 August 2006 treated putting these rolls in printed cartons with brand name and MRP as manufacture, and demanded duty for the period from March 2003 to February 2006 with interest and penalty, invoking the extended period. By order of 28 November 2006, the Commissioner of Central Excise, Chennai-II confirmed duty of ₹20,37,33,174 under section 11A(2), with equal penalty under section 11AC and interest under section 11AB, finding the activity to be manufacture under section 2(f)(iii), rejecting revenue neutrality because the CVD was paid by DEPB debit, and finding suppression since the assessee began paying duty voluntarily from 1 March 2006. The CESTAT, relying on Narmada Chematur Pharmaceuticals, allowed the appeal on 19 July 2007 (Final Order No. 905/2007), saying that after 2004-05 the CENVAT credit was available and exceeded the demand and that the earlier demand was time-barred. The Revenue appealed under section 35G, and the assessee objected to maintainability under sections 35G(1) and 35L, relying on Alupro Building Systems.

Questions before the court

• Did the Tribunal rightly hold the demand revenue neutral and time-barred, and is the appeal maintainable?

Why the court ruled this way

On maintainability, the assessee itself raised excisability before the original authority, which held the activity to be manufacture, and before the Tribunal the assessee confined its case to revenue neutrality, so the finding on manufacture attained finality and the appeal was not barred (paragraphs 8 to 10). On revenue neutrality, the Division Bench in Mohan Breweries held that CENVAT credit was not available where duty was paid by DEPB debit up to 31 August 2004, since the DEPB value is extinguished on use (paragraphs 17 to 19). For the later period, the Foreign Trade Policy allowed credit but the Tribunal's statement that admissible credit exceeded the duty had no basis and no factual finding on the credit, and the assessee, which pleaded revenue neutrality, had to prove it (paragraphs 20 and 21). On limitation, the Tribunal's one-line holding was unreasonable; the original authority's findings of suppression and absence of bona fide belief, shown by voluntary payment from 1 March 2006, were not displaced (paragraphs 22 to 24). The original authority's findings of contravention of the Central Excise Rules supported penalty and interest, and no perversity was found (paragraph 25).

Controlling point

The Tribunal's findings were perverse and untenable.

Order and next steps

The substantial questions of law were answered in favour of the Revenue and the civil miscellaneous appeal allowed, the Tribunal's Final Order No. 905/2007 dated 19 July 2007 being stated in the operative paragraph to be 'confirmed', with no order as to costs and the miscellaneous petition closed.

Practical implications

An assessee relying on revenue neutrality should place on record the quantum of credit available for each period and the legal basis, rather than a general plea, and note that DEPB-debited CVD was not creditable up to 31 August 2004.

Limits of this ruling

• The operative paragraph's word 'confirmed' does not match the reasoning, which sets aside the Tribunal's findings; the judgment does not spell out the final amount payable for the later period and should be read with the Court's reasons.